Law:

Section:

Section 37(1 ) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1975-76 - Assessee-firm consisted of three partners -One partner withdrew from partnership firm permitting firm to use his share of goodwill in firm in exchange of yearly payment of a certain sum of money - Final settlement of accounts was not done - Whether payment by assessee to retiring partner for use of his share of goodwill in firm was allowable as revenue expenditure - Held, yes FACTS The assessee was a partnership firm with two partners and a third person also joined the partnership. One of the partners P withdrew from the partnership. When P withdrew from the firm, it was agreed that he would be paid Rs. 50,000 per year in view of his share of the goodwill of the firm but no final settlement of account was made. The firm claimed deduction of Rs. 36,292 for the assessment year 1975-76 being the amount paid to P for use of his share in the goodwill of the firm. The ITO disallowed the claim. Though the AAC allowed the assessee's claim, the Tribunal held that the deduction claimed was not justified as P did not contribute anything towards earning of goodwill of the assessee-firm and he had left the firm for good to become a politician and the payment made to him was for extra-commercial consideration. On reference: HELD The share of P in the goodwill of the partnership had money value which on P's withdrawal from partnership and on settlement of accounts would have been paid to him. Instead, the arrangement made between P and the remaining partners was to permit the partnership to have the full use of the goodwill including P's share therein and, instead, to pay Rs. 50,000 per year in view of his share in that goodwill. The expenditure of Rs. 50,000 per year was incurred wholly and exclusively for the purpose of the business of the partnership. The yearly payments of Rs. 50,000 in view of the use of the goodwill by the remaining partners of the firm would not amount to acquisition by purchase of P's share in the goodwill. Instead, arrangement for the time being was only to pay a certain amount periodically to enable the partnership to make use of that…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492